Have you ever considered refinancing your home loan? This process involves getting a new home loan to pay back the previous mortgage so as to cash in on your home equity or score a more favorable interest rate.
Refinancing is much less complicated than the process of buying a new house. Even though it involves the same series of steps, the procedure is finished much sooner. It involves an application, underwriting, home appraisal, and the closing procedure.
The advice below would help you go through the refinancing process without any trouble.
Consider the different types of refinancing
When deciding to refinance a mortgage, you are expected to consider the different types of refinance loans you can apply for. The three available types are rate-and-term, cash-out, and cash-in. The goal of rate-and-term loans is to make an alteration to the interest rate, the repayment period, or both. The principal of the loan, however, will remain unchanged.
This alternative is considered the best for every homeowner aiming to reduce his/her installments or planning to make a switch from a mortgage with a fluctuating rate to one with a stable rate. Conversely, cash-out refinance loans provide an opportunity for homeowners to cash out a part of their home’s equity. Visit this page to learn some helpful tips for using your home equity.
Furthermore, the cash borrowers receive by choosing this option equals the difference between the old and new mortgage. Nevertheless, the installments and interest rates of cash-out loans are higher than those of rate-and-term refinancing.
The least common type of refinancing is the cash-in refinance. It occurs when homeowners pay money to reduce the new mortgage balance. Such an alternative is worth the attention if borrowers intend to eliminate private mortgage insurance or be eligible for lower interest.
Factor in your FICO score
It’s common for homeowners to experience an improvement in their FICO scores after a certain period of getting their first loan. This type of improvement increases their chances of getting more favorable rates on the refinance loan. Before the application process is started, you should have your score checked. Afterward, have a look at the score ranges to determine your position.
Exceptional credit scores range between 800 and 850, while a score between 740 and 799 is considered very good. If your score is between 670 and 739, it will be assessed as good. The range of fair credit score is 580-669, while the poor range credit score is 300-579. The largest part of moneylenders approves applications of candidates with a score of 620 or higher. Anyhow, your results must be very good or exceptional so as to score a better rate.
Choose a lender
The next step to take is choosing a qualified moneylender. Even though you can take out a refinance loan from your current lender, there is no harm in shopping around, as closing fees and interest rates aren’t universal. A minimum of three quotes is necessary to make a better comparison of the available options.
In case you are worried about submitting an application with more than one lender, there’s no cause for concern. Submitting multiple applications won’t be harmful to your official score, provided you submit them in the course of a short timeframe, between fourteen and forty-five days.
Submit an application
After you have made the basic decisions, you are supposed to proceed with the application procedure. If you select a new moneylender, you will need to provide complete documentation, just like the paperwork you submitted for the first mortgage.
Additionally, your new lender would probably ask you for proof of identity, full employment history, personal details, credit history, superannuation details, recent proof of income, bank statements, etc. It takes at least a week for moneylenders to process your documentation and make a decision on whether your application is worth approving.
Prepare for a home appraisal
In case your loan application gets pre-approved, the lender will order a home appraisal. The role of the appraisal is for the moneylender to assess the value of your home. Make sure you find an informative site like refinansiere.net – refinansiere, comparing various refinancing options. These sites also offer advice on preparing for the visit of the appraiser.
The best way to prepare for a home appraisal is to ensure the house looks spotless. You are recommended to finish any minor repairs, which you kept delaying until this moment. The appraiser will be impressed by a house that’s well-maintained and perfectly clean. You can even compile a list of all the upgrades you have made during your time as a homeowner.
For the application to be officially approved, the value of your home should be either identical or higher than the amount of the new loan. In case the value turns out to be lower, you will probably have to cancel your application.
If the underwriting process is successfully completed, the lender will send you the closing disclosure containing the final loan numbers. The closing procedure for a refinance is much quicker than the process of the first mortgage. You will have an opportunity to check the details one more time before officially signing the documents.
The refinancing process should be carefully considered before taking any official steps.
Have a consultation with professionals to ensure you are making the right decision.
Compare multiple refinance options before selecting the best one!